KARACHI, Aug 1: In the light of the judgment given by Justice Shabbir Ahmed in the case of amalgamation of Pfizer Laboratories Ltd (PLL) and Parke Davis & Company Ltd (PDCL), counsel for the objectors has urged the Sindh High Court to appoint a firm to undertake the task of evaluation of the petitioners.

Shahenshah Husain, advocate, has filed an application in the matter of sections 284 to 288 of the Companies Ordinance and in the amalgamation matter of the two American companies.

In the above order of June 26 the SHC had directed, inter alia, that the exercise of valuation be conducted afresh through an independent auditor, who should evaluate the petitioners as an ongoing concern, and for the purpose of valuation, factors such as tangible and intangible assets and every factor that concerned the valuation be taken into consideration.

Disposing of the petition on June 26, Justice Ahmed had held that “the scheme of amalgamation approved by the Board of Directors of the petitioners on the basis of valuation report of the auditors which was deficient on account of valuation having been done keeping the interest of the majority shareholders in mind.

“The PLL has not been taken by the auditors as an ‘ongoing concern,’ whereby tangible assets such as patent and trade mark and intangible assets (goodwill) have not been considered for the valuation of its assets, therefore the same cannot be termed to be just, fair and reasonable, and thus the scheme being oppressive to the interest of the minority shareholders cannot be approved.

“This would amount to excluding the minority from a company without a reasonable offer to buy their share or to make some other fair arrangement with them. What has been termed unfair prejudice to shareholders. Therefore, the approval of the scheme is declined.”

On the basis of the directions of the Court, the petitioners have drafted a Term of Reference (ToR) for the proposed valuation to be undertaken by independent auditors.

The petitioners approached the Institute of Chartered Accountants of Pakistan which has provided a list of the professional practising accounting firms in Pakistan, which have 10 or more partners.

Listing six largest accounting firms, Mr Husain has prayed the court to appoint any of the listed firms to undertake the task of evaluation of the petitioners in accordance with the proposed ToR.

The SHC in its Order dated June 26 in JM 29 of 2001 relating to the petition for amalgamation of the PLL and the PDCL had, disposing of the petition, directed, inter alia, that.

“The exercise of valuation be conducted afresh through an independent auditor, who should evaluate the petitioners as ongoing concern and for the purpose of valuation the factors such as tangible and intangible assets and every factor that concern the valuation be taken into consideration.”

Accordingly, the petitioners propose to appoint a firm of independent valuators to undertake a fresh valuation for the purposes of their amalgamation and determining the swap ratio of the shares of the petitioners (the valuation).

In the Order, the Court had made certain observations which should be taken into consideration in undertaking the valuation and which, therefore, should form the terms of reference for the work to be undertaken by the new valuators (the ToR).

According to the proposed ToR, for the purposes of the valuation, each of the petitioners should be treated as an “ongoing concern,” not as companies which are being wound up.

For purposes of the valuation, all tangible assets of the petitioners should be considered.

For purposes of the valuation, all intangible assets of the petitioners should be considered, including the value of the Pfizer brand name, goodwill, other assets, including patents, trade marks, licences, research and development capability and the number of products that are in Pfizer’s research pipeline. It is noted in the Order that “in determining the value of corporate stock for the purpose of consolidation... earnings, general economic conditions, and every fact which has tendency to indicate value should be considered. In determining fair value of stock, assets of corporation will be deemed to include every kind of property and value whether reality or personality, tangible or intangible, including goodwill, as going concern.”

For the valuation, the tax liability of both the PLL and PDCL should be considered.

The valuation should be fair and reasonable to all (majority and minority) shareholders of the petitioners taking into consideration the interest of all shareholders of the PLL and the PDCL. The valuation should not be conducted on the premise that the majority shareholding of both companies is owned by one entity.

The report of the valuation should be disclosed to all shareholders of the PLL and the PDCL. There should not be any restriction on the disclosure of the valuation report to any shareholder, whether majority or minority, of the petitioners.

For purposes of the valuation, all necessary factors concerning the petitioners should be taken into account. In this respect, para 55 of the Order provides that.

“The problem of valuation of similar companies has been dealt with by Weinberg and Blank in the book Take-overs and Mergers in which it has been stated that some or all of the following factors will have to be taken into account.

In view of the Order of the SHC, the valuation should take into consideration the above-mentioned ToR along with all such other factors.